Remotely controlled tipper trucks operate at a Rio Tinto iron ore mine in Western Australia.Handout
A volatile stock market and a gloomy outlook for the global economy have sideswiped the stock market value of the top junior mining companies on the TSX Venture Exchange this year and made it more difficult for them to raise cash, according to a new report to be released Monday.
And while there have been hints at a potential turnaround next year, the report by PricewaterhouseCoopers LLP estimated equity financing for the top 100 TSX Venture Exchange junior miners was down 41 per cent to $1.6-billion compared with $2.7-billion raised by the top 100 junior miners last year.
PwC also estimated that the market capitalization of 2012's top 100 fell 43 per cent compared with 2011's top 100 as of June 30, with just 14 valued at more than $200-million compared with 36 in 2011.
John Gravelle, PwC's mining leader for the Americas, said over the last year investors have been cautious of the volatile market and not willing to invest.
"The macro-economic pullback is driving investors to hold on to or cash-in their investments, leaving junior miners urgently looking for new sources of financing," Gravelle said.
"While a dramatic turnaround is not expected any time soon, recent market activities should give junior miners a resurgence of optimism for 2013."
Growth in China has been slower this year compared with the skyrocketing rates the Asian country had been posting and the demand for key commodities has been weaker.
As well, the sluggish recovery in the United States and the turmoil in Europe have not helped.
The coal sector saw the highest average equity financing – raising $23.6-million – followed by gold, copper and rare earth minerals, which raised on average $15.3-million, $15.2-million and $15.1-million respectively.
In 2011, iron ore, silver and copper led the way.
Only four mining initial public offerings on the TSX Venture Exchange were completed in the third quarter of 2012 compared with 14 in the third quarter of 2011.
In total, there were 25 mining IPOs on the junior exchange in the first nine months of the year, down from 34 in the same period in 2011.
The tough market has meant spending cuts and project delays for cash-starved junior miners. According to the PwC report, junior mining companies have turned to alternative forms of financing to raise cash.
"Anticipate foreign investment and vertical integration to continue to be an important part of junior miners' growth strategy in 2013," says Gravelle.
"Foreign investors are being strategic in the way they structure investments – acquiring substantial economic interests without having to acquire the public company that owns the asset."
The average stock market value of the top 100 junior miners dropped to $117-million in the 2012 report from $206-million in 2011.
PwC said the top TSX Venture Exchange junior mining company by stock market value was Sandstorm Gold, a gold streaming and royalties company based in Vancouver. Copper Fox Metals, the leader in 2011, was third this year.